The prime rate is the interest rate that commercial banks charge their most creditworthy customers, such as large corporations. It is not a uniform rate that applies to all bank loans, nor is it set by the Federal Reserve or used by the Treasury department to set coupon rates for bonds. It is also not specific to a certain time of day (i.e. prime time).

Solved

The Prime Rate Is

Question 20

Multiple Choice

The prime rate is

A) an interest rate charged during prime time
B) a uniform interest rate that applies to all bank loans
C) an interest rate charged by the Fed for using its facility
D) an interest rate charged by the bank for its most creditworthy customers
E) an interest rate used by the Treasury department to set the coupon rate for T- bonds

Correct Answer: